Kenyans are up in arms against Ruto’s new taxes

Kenya’s 2024 Finance Bill, which proposes new taxes on several items and services, has drawn widespread criticism from citizens this week. If passed, the law will give the Kenya Revenue Authority (KRA) sweeping powers to enforce tax compliance; the KRA will be able to access bank and mobile money accounts to ensure compliance.

The changes in the Finance Bill 2024 propose new levies ranging from a VAT tax on bread to a 5% increase in excise duty on financial transactions like bank payments and mobile money transfers. Others include new taxes on insurance services and a significant economic presence which will require non-residents with online businesses in Kenya to pay a 20% tax on gross turnover.

Some Kenyans say they have lost faith in President William Ruto, who rode a wave of voter anger on key issues like the economy and over-taxation, to victory. Supporters and the opposition alike say he has backtracked on key campaign pledges. They also point out some poor optics, like chartering a $1.5 million jet for his US visit, amid his calls for austerity in the eye of a growing debt repayment burden.

According to the National Treasury Budget Policy Statement, Kenya is looking to boost revenue collection to over 20% of the GPD in the financial year starting July. It targets $22.2 billion (KES2.95 trillion) in tax collections, up from $19.7 billion (KES2.62 trillion) in the previous year.

A dozen industry associations and lobby groups have written to the National Treasury and Parliament opposing certain sections of the new law that would force them to increase the prices of goods and services.

The Kenya Bankers Association (KBA) was the first to express their disappointment in the Finance Bill 2024, which has already gone through the first reading in the National Assembly. For KBA, the increase of excise duty on bank transactions from 15% to 20% and a further 16% VAT on services will raise the cost of banking to 40%, reversing gains made in financial inclusion.

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“It has long been held, and rightly so, that while VAT applies to payments for goods and services, bank charges are not a direct payment for anything, but a cost recovery. Since banks are not delivering any goods to customers, bank charges are not considered VATable. Kenya has until now, held this principle to be true,” KBA said in a statement sent to TechCabal.

“Regarding foreign exchange transactions, the proposed VAT will widen the margin charged on FX transactions. This poses risks to economic growth by taxing export proceeds and hindering the competitiveness of Kenyan products.”

Ruto’s coalition, which enjoys a sailable majority in both houses–the national assembly and senate, maintains that the new measures are necessary and will help the country repay its debt. Kenya’s total debt is $75.3 billion (KES10 trillion), of which $52.7 billion (KES7 trillion) is owed to external creditors—the country’s debt-to-GDP ratio at 70%, the second highest in East Africa after Burundi.

A joint sitting of the National Assembly and Senate on November 30, 2021. PHOTO | NATION

Kenyans are already feeling the heat, as inflation accelerates and interest rates outpace salaries in both the public and private sectors. The Finance Bill also proposes a 25% excise duty on vegetable oils which sector players argue will increase the prices of cooking oil, soap, margarine, and other essential kitchen commodities.

“If implemented, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households. The cost of this essential commodity is projected to skyrocket by 80%, rendering it unaffordable for millions of Kenyans, particularly low-income earners, and small-scale traders,” Edible Oil Manufacturers said in a statement sent to TechCabal.

Since August 2022, cooking oil prices have more than tripled because of the surging cost of global crude palm oil and the Ukrainian crisis, which has also affected the cost of wheat flour. Edible oil manufacturers told TechCabal the effect of the new levy will see prices of 400g bread rise to $0.6 (KES80) from $0.53 (KES70) before the new 16% VAT.

The price of a long bar sopa will rise to $2.07 (KES270) from $1.36 (KES180), while margarine will almost double to $2.26 (KES300).

“Such price hikes will disproportionately affect the most vulnerable members of society, exacerbating the already high cost of living and plunging millions into deeper financial distress,” the manufacturers said.

Kenyans see the Ruto administration’s push to bolster revenue collections by increasing taxes as a U-turn on the lofty promises he made on the campaign trail in before the 2022 elections. Experts reckon that the new law will affect sectors with low penetration like the insurance industry.

The Association of Kenyan Insurers (AKI) has written to parliament to discard a 2.5% motor circulation tax that will be pegged on the vehicle value, paid when buying insurance. Kenya has the third lowest insurance penetration in sub-Saharan Africa at 3%.

AKI has warned that if the law passes, most motorists will shift to third-party insurance policies to avoid the high cost of comprehensive coverage.

“The imposition will notably increase the cost of motor insurance. Currently, the average comprehensive insurance premium rate stands at 5%, and with the additional 2.5%, the total premium rate surges to 7.5%,” said Tom Gichuhi, AKI executive director.

Other associations like the Kenya Manufacturers Association (KAM), Petroleum Outlets Association of Kenya (POAK), and Kenya Association of Air Operators (KAAO). Associated Battery Manufacturers (EA), a battery maker based in Nairobi, has also come out to oppose the introduction of eco-tax which will pegged at $5.65 (KES750) per kilo of battery.

“A small lead acid battery for a motor vehicle is 12kg, with a retail price of $64 (KES8,500). The eco-tax for this small battery will translate to an additional $67.8 (KES9,000) plus VAT. Therefore, a small car battery will retail at $131.8 (KES17,500). This translates to an increase of 120% as a direct result of the proposed eco-tax,” said Guy Jack, Associated Battery Manufacturers (EA) CEO.

Also jarring to Kenyans, the law wants parliament to give KRA unfettered access to mobile money and bank accounts without a court warrant. The revenue agency hopes to catch tax evaders and increase compliance, a move opponents say contradicts the country’s Data Protection Act of 2019.

While a petition has been filed in a Nairobi court seeking to block the new law, Ruto’s majority in the legislature will give it a smooth pass.